The Reserve Bank is open to the prospect of limiting the use of surcharging by merchants, with one option to prohibit surcharging on debit card transactions.
RBA head of payments Ellis Connolly said the central bank recognises that there is an increased level of community concern around the growth in card surcharging and it accepts that a lot has changed in the payments landscape since it enabled merchant surcharging in the early 2000s.
Speaking at last week’s AFR Banking Summit, Connolly said: “It is time for us to review the surcharging framework and consider whether it is still fit for purpose.”
According to an RBA research paper published last November, The Evolution of Consumer Payments in Australia, three-quarters of payments are now made with cards or their digital equivalents.
Consumers surveyed for the report said they paid a surcharge on 7 per cent of their card transactions in 2022, compared with around 5 per cent of card transactions in 2019.
As a percentage of the transaction value, the median surcharge reported was 1.5 per cent.
In previous surveys the type of card used was a determining factor in whether a surcharge was paid, with credit card payments surcharged more often than debit card payments. But in the 2022 survey, respondents reported that surcharges were paid equally on credit and debit card payments.
“The increased prevalence of debit card payments, greater use of payment plans that charge merchants a single percentage rate for accepting all card types and the emergence of payment providers that offer automatic surcharging may have all contributed to the convergence in surcharging frequency on credit and debit cards,” the report said.
Connolly said: “Back in 2007 the regime we put in place made sense. Surcharging gave merchants some bargaining power, it put pressure on card schemes to keep their costs low and it was a signal to consumers to use cheaper payment methods.
“Now with the increase in non-cash payments and the increase in the application of the same charge for debit and credit payments, consumers feel they cannot avoid the surcharge.
“Our review will put all options on the table. Given that debit is now the most frequent means of payment, it may be time for debit card payments to be surcharge free.
“We will also be looking at how we can retain some of the benefits of surcharging.”
Lance Blockley, managing director of The Initiatives Group, published a note a couple of weeks ago saying there is a strong case for ending surcharging on debit transactions.
Blockley said: “The RBA’s surcharge regime has effectively always measured the cost of card payments against a zero-cost base, hence permitting the surcharge to equal the full cost of their payment service provider.
“For some time, I have expressed the opinion that the card surcharge should be the differential in the cost between accepting a card payment and accepting cash, in s similar vein to the European Union regime.
“Over the years, the merchant cost of accepting debit card transactions in Australia has been reduced by various requirements and limits published by the RBA, such that one could argue that the cost of debit card acceptance is now equal to the cost of accepting cash.
“If debit card acceptance incurs the same cost as cash acceptance, and there is a growing consumer backlash against surcharging, there would seem to be a case for the RBA to ban merchants from surcharging debit card transactions in Australia, at least at the physical point of sale.”